Supply and Demand

Supply and Demand

Supply and demand is an easy concept for airplane owners to understand – the more there is, the lower the price. Take the oil and gas industry, for instance, an industry I know little about, but I won’t let that stop me from pontificating. 

  1. Some smart person figures out how to drill sideways and extract a lot more oil.
  2. Thousands of folks with money rush to drill for the oil.
  3. Like an Easter egg hunt with too many kids, they find lots of it quickly.
  4. So much in fact that the price comes down and everyone is happy.

Except maybe for those folks who started a new oil company. But the opposite can happen, too. And stay with me because here is where it is going to cost you a lot of money.

The aviation insurance industry.

For the last decade or more, the overall safety record, especially of the airlines, has been outstanding. It was a great place for insurance companies to make money. Few claims, stable costs and billions of dollars poured into the market. New companies emerged to compete for your business and premiums went down dramatically. Everyone was happy.

Except for those new insurance companies, perhaps. 

Then something bad happened. Airplanes started crashing more often, especially airliners like the Miami Air International’s 737 pictured below. And although no one perished in this
crash, it doesn’t take many $35,000,000 to $100,000,000 hull losses to mess up the insurance market.

Three insurers have recently exited the market. Remember that supply and demand thing?

Recently, I had the opportunity to speak at the Aviation Insurance Association’s annual conference in Asheville, North Carolina. What I heard from brokers, underwriters and lawyers is concerning. Claims are up and profits are down. And just like in your business, something must give.

If you have recently opened your renewal premium letter, you probably were shocked. Industry folks tell me that it’s much harder to get coverage for even longtime customers. “Two years ago, I could get great coverage for a pilot with 600 hours in a single-engine airplane moving to a single-pilot jet,” said one broker. “Not anymore.”

Along with 10 to 25 percent premium increases, coverage limits are being lowered, training requirements increased and age limits reduced. Of course, what comes up must come down. But how long will it take to reverse the cycle? With thousands of new, less experienced pilots entering the industry, do you think the safety record will improve soon?

And while the fatality rates for the kinds of airplanes we fly are fairly steady, recent hull losses, especially from landing accidents, give us nothing to brag about.

So, what can you do to make yourself more attractive to your insurer?

Andrew Broom, CEO of Citation Jet Pilots Association (CJP) and I were in Asheville to present our safety efforts including the “CJP Gold Standard Safety Award” program to the insurance industry. It is a comprehensive effort of additional training, standard operating practices (SOPs) and a video series called “What Good Looks Like” that Citation operators can adopt to become safer pilots. 

And you can access it and incorporate it into your safety efforts regardless of the type of airplane you fly, free of charge at www.citationjetpilots.com/safety.

We are all in this together.

Fly safe.  

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